Microsoft Amazon Alphabet all winning in AI says D.A. Davidson analyst

Microsoft, Amazon and Alphabet are each reporting record AI‑related growth and pre‑sold data‑center capacity, a point Gil Luria of D.A. Davidson highlighted as evidence they are “winning” in AI despite current cash‑flow compression【2】.

Record‑setting AI spend and backlogs

Microsoft’s FY26 Q3 capital expenditure jumped 84% year‑over‑year to $30.88 bn, yet operating margin held at 46.3% and its AI business hit a $37 bn annual run‑rate, a 123% increase YoY【2】. The company also reported a $627 bn commercial backlog, underscoring that much of its new capacity is already contracted.

Amazon’s AWS posted $37.59 bn in revenue for Q1 2026, the fastest 15‑quarter growth streak, with a 37.7% operating margin. Custom chip revenue topped a $20 bn run‑rate, and Amazon guided full‑year capex at roughly $200 bn to meet commitments from Anthropic (up to 5 GW) and OpenAI (≈2 GW) starting in 2027【2】.

Alphabet’s Google Cloud revenue surged 63% to $20.03 bn, while its backlog nearly doubled QoQ to over $460 bn. Capex more than doubled to $35.67 bn, with 2026 guidance of $175‑$185 bn【2】. Despite a 46.6% drop in free cash flow, the cloud segment’s growth signals the “real spend” Luria cites, with AI consumption now at a $120 bn annual rate【3】.

How the AI spend translates to returns

Luria argues the hyperscalers’ data‑center projects are “pre‑sold,” meaning they know construction costs and can mark‑up services to customers such as OpenAI and Anthropic, delivering attractive returns once the capacity is operational【2】. He notes that while investors see cash‑flow margins at historic lows, the underlying contracts and backlogs suggest revenue will materialize over the next three to five years【2】.

The analyst also points to the rapid climb in AI run‑rates—OpenAI and Anthropic’s combined rate leapt from under $20 bn to over $75 bn in six months—providing concrete demand evidence for the massive capex outlays【2】.

Competitive dynamics

All three firms are leveraging scale to lock in AI compute demand, creating a self‑reinforcing ecosystem: Microsoft with OpenAI, Amazon with Anthropic, and Alphabet with its own cloud offerings. This “love triangle” of AI providers and hyperscalers, while generating short‑term cash‑flow strain, positions each company to capture a sizable share of the projected multi‑hundred‑billion‑dollar AI spend【3】.

What to watch

• Azure growth guidance of 40% and subsequent earnings releases for Microsoft.
• AWS and Google Cloud capacity commitments from Anthropic and OpenAI in 2027.
• Alphabet’s free‑cash‑flow trajectory and any updates to its 2027 capex plans.

The core question remains whether cloud growth can accelerate quickly enough to offset the near‑term cash‑flow drag, turning today’s massive spend into sustainable profitability for the AI‑driven hyperscalers.